The Hong Kong Mortgage Corporation is considering introducing a scheme to allow homeowners in negative equity to refinance their mortgages by borrowing up to 140 per cent of the value of their property.
The scheme would allow homebuyers to cover their original mortgage with the new loan at today's lower interest rates.
The corporation is in talks with banks to allow homebuyers to exceed the standard mortgage cap of 70 per cent of the value of a property, provided they take out a special insurance policy.
The banks would cover the risk of default on up to 90 per cent of the value of the property, with the remaining risk covered by the HKMC's insurance policy, a corporation source said.
Homebuyers wishing to take out the insurance would have to pay a one-off fee of four to five per cent of the value of their loan.
Many homeowners are victims of negative equity - when the value of a property is less than its mortgage. The situation mainly affects people who bought homes in the pre-1997 economic boom, only to see prices plummet over the past five years.